OAKWOOD MOBILE HOMES, INC AND WILLIAM J. ROTERT, JR. V. SHERRIE A. SPROWLS
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AMENDED AUGUST 26, 2002
TO BE PUBLISHED
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2002-SC-0147-l
OAKWOOD MOBILE HOMES, INC
AND WILLIAM J. ROTERT, JR.
MOTION FOR CR 65.09 RELIEF ’ ’
COURT OF APPEALS NO. 2001 -CA-2642-l
HARDIN CIRCUIT COURT NO. 99-Cl-1614
V.
SHERRIE A. SPROWLS
RESPONDENT
OPINION AND ORDER DENYING MOTION TO VACATE PURSUANT TO CR 65.09
I. INTRODUCTION
Pursuant to CR 65.09, Oakwood Homes, Inc. (“Oakwood”) and William J.
Rotert, Jr. (“Rotert”) (hereinafter collectively “Movants”) ask this Court to vacate a
February 18, 2002 order of the Court of Appeals. In the order, the Court of Appeals
denied Movants’ CR 65.07 motion seeking relief from the Hardin Circuit Court’s order
denying Movants’ Motion to Compel Arbitration. We hold that Movants have failed to
show extraordinary cause to justify the relief they seek, and we therefore deny Movants’
motion.
II. FACTUAL BACKGROUND
The underlying dispute between the parties is a civil action for damages under
Kentucky’s Civil Rights Act (KRS Chapter 344) and for the tort of outrageous conduct.
Respondent alleges that: (1) her employer, Oakwood, discriminated against her on the
basis of her sex when it passed her over for promotion; and (2) both Oakwood and
Respondent’s former general Manager, Rotert, intentionally and continuously subjected
her to extreme and outrageous conduct that caused her severe emotional distress.
Respondent originally filed her lawsuit in the Hardin Circuit Court, but Movants were
initially successful in removing the action to the United States District Court for the
Western District of Kentucky.
Movants allege that Respondent entered into an arbitration agreement in which
she agreed that all employment disputes between herself and Oakwood would be
referred to arbitration. Thus Movants filed a motion asking the United States District
Court to dismiss Respondent’s action or, in the alternative, to stay the action and
compel arbitration. The District Court conducted an evidentiary hearing on Movants’
motion, found that no arbitration agreement existed because Respondent did not have
actual notice of Oakwood’s unilateral adoption of its mandatory “Dispute Resolution
Program” for its employees, and denied Movants’ motion. Thereafter, pursuant to
applicable federal law, Movants appealed the District Court’s denial of arbitration to the
United States Court of Appeals for the Sixth Circuit. While the arbitration appeal was
pending, the District Court determined that it lacked subject matter jurisdiction over the
claim and remanded the action to state court. Movants then appealed the remand, but
the Sixth Circuit Court of Appeals dismissed Movants’ appeal of the remand for lack of
jurisdiction and then dismissed Movants’ then-pending arbitration appeal as moot.
Back before the Hardin Circuit Court, Movants renewed their motion to compel
arbitration. After adopting the factual findings and reasoning of the United States
District Court, the Hardin Circuit Court denied Movants’ motion:
Defendant’s alternatively move this court to stay the action
and compel arbitration. They argue that the Plaintiff
assented to the arbitration program by continuing her
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employment with Oakwood Mobile Homes after the program
was implemented, despite the fact that the Plaintiff
emphatically denied ever having been informed about the
program. At the heart of the dispute between the parties
therefore, is the proper forum for the resolution of the
Plaintiff’s claims.
Defendants proffer three arguments in support of their
Motion to Stay and Compel Arbitration: (1) “that the
Supreme Court’s decision in Circuit City v. Adams, 532 U.S.
105[, 121 S.Ct. 1302, 149 L.Ed.2d 2341 (2001), confirms that
agreements to arbitrate statutory claims are enforceable,”
(2) “Kentucky case law firmly establishes the right of an
employer to promulgate and modify employment policies
and practices unilaterally,” and (3) “reasonable notice is all
that is required to apprise employees of a change in the
terms or conditions of their employment.”
In their Memorandum in Support of Defendants’ Motion to
Dismiss or Alternative Motion to Compel Arbitration,
Defendant’s correctly state that statutory claims can be
subject to arbitration. Circuit Citv v. Adams, [supra].
However, whether the Plaintiffs’ [sic] statutory claims are
arbitrable is not in dispute. The Plaintiff simply argues that
she had no notice of the arbitration program.
Defendants next argue that an employer may unilaterally
alter the terms and conditions of an at-will employment
relationship. Without a doubt, jurisdictions across the
country recognize that employers may unilaterally alter the
terms and conditions of a person’s employment. Still
however, the Plaintiff argues that she had no notice of the
unilateral change in policy and cannot therefore, be bound
by that change in policy. See oenerally, Thomas G. Fischer,
Annotation, Sufficiencv of Notice or Modification of
Comoensation of At-will Emoloyee Who Continues
Performance to Bind Employee, 69 A.L.R. 4’h 1145 (2001)
(noting lack of notice as bar to binding employee to new
term).
With regard to the third argument, Defendants argue that
“reasonable notice” of the arbitration clause is the standard
to which the Plaintiff should be held for binding arbitration.
For this proposition, the Defendants rely heavily on
Hiohstone v. Westin Enq’o. Inc., 187 F.3d 548 (6th Cir.
1999), a case originating from Michigan. While the
Hiahstone case may have been decided by our own United
States Court of Appeals for the Sixth Circuit, the fact
remains that Hiahstone is a Michigan case interpreting
Michigan contract law. Because arbitration agreements are
a matter of contract, AT&T Technologies Inc.. v.
Communications Workers of America, 475 U.S. 643[, 106
S.Ct. 1415, 89 L.Ed.2d 6481 (1986)(stating that arbitration is
a matter of contract), and are interpreted according to state
law, Perry v. Thomas, 482 U.S. 483[, 107 S.Ct. 2520, 96
L.Ed.2d 4261 (1987) (stating that “state law, whether of
legislative or judicial origin, is applicable [to arbitration
agreements] if that law arose to govern issues concerning
the validity, revocability, and enforceability of contracts
generally”), a Michigan case interpreting Michigan contract
law is inapposite to interpreting Kentucky’s law of contracts.3
3Michigan’s “reasonable notice” standard
would vitiate the requirement of the “meeting of
the minds”, which is an essential element to
the formation of a contract or the acceptance
of a unilateral alteration of policy. Moreover,
Kentucky law requires a “meeting of the
minds.” Harlan Public Service Co. v. Eastern
Const. Co, [254] Ky. [135], 71 S.W.2d 24
(1934)(stating that to constitute a binding
contract, minds of the parties must meet, and
one cannot be bound to a contract to which he
was not a party, nor by uncommunicated terms
without his consent.)
As noted by the Plaintiff, the “first task of a court asked to
compel arbitration is to determine whether the parties
agreed to arbitrate that dispute.” Mitsubishi Motors Core. v.
Soler Chrysler-Plymouth. Inc., 473 U.S. 614, 626[, 105 S.Ct.
3346, 87 L.Ed.2d 444, 4541 (1985). After removal and while
this case was pending in U.S. District Court before Judge
John G. Heburn, Ill, an evidentiary hearing occurred,
pursuant to 9 U.S.C. § 4, with regard to whether or not the
parties agreed to arbitrate. After this hearing, the case was
then remanded to this Court.
Based on that hearing, the U.S. District Court made
several findings of fact. Although not bound to do so, this
Court adopts the findings of fact with regard to whether
Plaintiff Sprowls had notice of the arbitration program with
respect to her employment claims. During that hearing,
Defendant Oakwood presented evidence that it notified all
employees by mail using the information in its corporate
database. It also presented evidence that it published notice
of the arbitration program in a weekly newsletter and that
management discussed the arbitration program with its
employees. Plaintiff Sprowls however, denied any
knowledge of the program. Interestingly enough, she is not
-4-
alone. Of the six sales representatives who worked in
Oakwood’s Sales Center, four of them denied knowledge of
the arbitration program. For these reasons, this Court
makes the factual findina that Plaintiff Sorowls did not have
notice of the arbitration oroaram and therefore. could not
have assented to beina bound by it by continuing her
emplovment with Oakwood. For the reasons stated above,
the Defendants’ Motion to Stay the Action and Compel
Arbitration is DENIED.
(Emphasis added and footnotes 2, 4, and 5 omitted).
Movants then sought appellate review on two (2) fronts. First, in 2001-CA-2642,
Movants sought interlocutory relief in the Court of Appeals under CR 65.07.’ The Court
of Appeals denied the requested relief in a one (1) sentence order that read: “It is
ORDERED that movants’ motion pursuant to CR 65.07 for relief from order denying
motion to compel arbitration and movants’ motion for oral argument be DENIED.” The
matter now before this Court represents Movants’ CR 65.09* motion to vacate the order
of the Court of Appeals in 2001-CA-2642.
Because of the nature of Movants’ CR 65.09 arguments, however, we also
observe that, after filing the CR 65.07 matter in the Court of Appeals, Movants filed a
direct appeal, 2001 -CA-2668 - ostensibly in accordance with CR 733 - from the trial
court’s order denying arbitration. Although Movants advise us that the Court of Appeals
*“Though the granting, denying, modifying, or dissolving of a temporary injunction
is not a final order, [CR 65.071 gives a party adversely affected the right to apply to the
Court of Appeals for temporary relief.” Kurt A. Philliips, Jr., 7 Kentucky Practice (Rules
of Civil Procedure Annotated) (5’h ed.) at 510 (West Publishing Co. 1995).
2”[CR 65.091 provides for interlocutory relief by the Supreme Court of Kentucky of
an order of the Court of Appeals, ruling on a motion seeking relief from the granting or
denial of a temporary injunction under CR 65.07 . . . .‘I id. at 520.
3”Appeals may be taken only from final and appealable judgments and orders.
Rule 54.01 defines a final and appealable order as “a final order adjudicating all the
rights of all parties in an action or proceeding or a judgment made final under Rule
54.02.” Id. at 565. See also infra note 9 and surrounding text.
issued a show cause order on February 13, 2002 stating that “[i]t appears to the Court
that this appeal was taken from a decision that is not final or appealable” and granting
Movants twenty (20) days “in which to SHOW CAUSE why this appeal should not be
dismissed as interlocutory,” the Court of Appeals has not dismissed the action. In fact,
the record in 2001-CA-2668 reflects that Movants filed a timely response to the Court’s
show cause order, that the parties have subsequently briefed the appeal, and that the
matter remains pending in the Court of Appeals.
III. ANALYSIS
Interlocutory relief in the Supreme Court is governed by CR 65.09:
Any party adversely affected by an order of the Court of
Appeals in a proceeding under Rule 65.07 or Rule 65.08
may within five (5) days after the date on which such order
was entered, move the Supreme Court to vacate or modify
it. The decision whether to review such order shall be
discretionary with the Supreme Court. Such a motion will be
entertained only for extraordinary cause shown in the
motion.4
Recently, in National Colleaiate Athletic Ass’n v. Lasege,5 we observed that
interlocutory appellate relief in this Court is available only in cases that demonstrate
“extraordinary cause,” but that an abuse of discretion by the trial court may justify relief:
Under CR 65.07, the Court of Appeals may reverse [a
circuit court’s determination regarding the propriety of
injunctive relief] only where it appears that the circuit court
has made clearly erroneous findings unsupported by
substantial evidence. Interlocutory relief in this Court is
appropriate only where we find that it is warranted by
“extraordinary cause.” . . .
While additional review by this Court is limited to those
cases which demonstrate “extraordinary cause,” abuses of
discretion by the courts below can supply such cause. In
4CR 65.09(l).
‘KY., 53 S.W.3d 77 (2001).
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Commonweath of Kentucky Revenue Cabinet v. Picklesimer
[KY., 879 S.W.2d 482 (1994)], this Court addressed the
Revenue Cabinet’s CR 65.09 motion seeking dissolution of a
temporary injunction which prohibited it from preventing
Picklesimer from re-taking elected office despite ongoing
removal proceedings from a prior term. The Court accepted
the Cabinets argument that CR 65.09 relief could be
justified if a trial court’s findings were clearly erroneous, but
denied relief because it found the trial court’s findings
supported by substantial evidence.6
In the case at bar, however, we find no “extraordinary cause” to warrant CR 65.09
relief.
Initially, we note that Movants’ CR 65.09 motion scarcely addresses the only real
issue before the Court - i.e., whether the trial court abused its discretion when it
denied Movants’ motion to compel arbitration. Instead, Movants question the adequacy
of CR 65.07 and CR 65.09 interlocutory appeal procedures - designed to allow
expedited and timely review of trial court rulings as to temporary injunctive relief - as a
forum for appellate review of denials of motions to compel arbitration. Specifically,
Movants argue that CR 65.07’s requirement that they must make a threshold showing
7
of injury before the Court of Appeals may grant relief violates the Supremacy Clause of
(j1d. at 84 (footnotes omitted).
‘CR 65.07(5)(b) (“The basis of affirmative relief shall be the grounds specified in
Rule 65.04(l) . . . .‘I); CR 65.04(l):
A temporary injunction may be granted during the
pendency of an action on motion if it is clearly shown by
verified complaint, affidavit, or other evidence that the
movant’s rights are being or will be violated by an adverse
party and the movant will suffer immediate and irreparable
injury, loss, or damage pending a final judgment in the
action, or the acts of the adverse party will tend to render
such final judgment ineffectual.
Id.
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the United States Constitution and ignores the Federal Arbitration Act’s (“FAA’s”)
provision for direct appeals from denials of motions to compel arbitration.’ Movants
argue that Kentucky’s CR 65.07 and CR 65.09 procedures “unduly impede or restrict
the enforcement of arbitration agreements which fall within the scope of the FAA”
because they require a greater showing than the rules authorizing direct appeals from
final judgments. Additionally, Movants take issue with the fact that, compared to a
direct appeal, interlocutory relief under CR 65.07 and CR 65.09: (1) allows them shorter
briefing time; (2) denies them the ability to file a reply brief; and (3) does not allow them
to seek rehearing. Movants also observe that Kentucky statutory law authorizes a
direct appeal from denials of arbitration9 in all contexts other than employment or
insurance,” and Movants contend that the United States Supreme Court’s conclusion
‘9 U.S.C. § 16(a).
9KRS 417.220(l) (“An appeal may be taken from: (a) An order denying an
application to compel arbitration made under KRS 417.060 . . . .‘I); Marks v. Bean,
Ky.App., 57 S.W.3d 303, 304 (2001) (“Although interlocutory, such an appeal is allowed
pursuant to Kentucky Revised Statutes (KRS) 417.220(1)(a).“); Conseco Finance
Servicina Corp. v. Wilder, Ky.App., 47 S.W.3d 335, 340 (2001); Valley Construction
Company. Inc. v. Pert-v Host Manaaement Company. Inc., Ky.App., 796 S.W.2d 365,
366 (1990).
‘OKRS 417.050:
A written agreement to submit any existing controversy to
arbitration or a provision in written contract to submit to
arbitration any controversy thereafter arising between the
parties is valid, enforceable and irrevocable, save upon such
grounds as exist at law for the revocation of any contract.
This chapter does not apply to:
Arbitration agreements between employers and
(1)
employees or between their respective
representatives; and
Insurance contracts. Nothing in this subsection shall
(2)
be deemed to invalidate or render unenforceable
contractual arbitration provisions between two (2) or
(continued...)
-8-
that the preemptive FAA provisions apply to employment contracts” not only calls this
dichotomy into question, but also creates a potential equal protection quandary.
Accordingly, Movants ask this Court to: (1) vacate the order of the Kentucky Court of
Appeals denying CR 65.07 relief; (2) overrule BridgestoneIFirestone v. McQueen
(which became final without either party seeking discretionary review) as inconsistent
with and preempted by the Federal Arbitration Act; and (3) remand this matter to the
Kentucky Court of Appeals with instructions to consider Movants’ appeal as a CR 73
direct appeal.
It appears that Movants have not only confused their two (2) appellate actions,
but that they have “jumped the gun” by raising such arguments in this proceeding.
Simply stated, Movants’ “improper forum” arguments are not germane to our CR 65.09
“(...continued)
more insurers, including reinsurers.
ld.; Bridaestone/Firestone v. McQueen, Ky.App., 3 S.W.3d 366 (1999):
In 1984, the Commonwealth of Kentucky adopted the
Uniform Arbitration Act set forth at KRS Chapter 417. As
Firestone notes, the Act expressly provides for appeals from
an order denying an application to compel arbitration even though such an order is not final under CR 54.01.
KRS 417.220(1)(a). However, the Act also specifically
excludes from its provisions arbitration agreements between
employers and employees. As a result, McQueen argues,
the appeal of this interlocutory order is not governed by the
Act. We agree.*
*The provisions of the federal Act do not
preempt Kentucky’s procedure for obtaining an
immediate review of an order denying the
application for arbitration.
Id. at 367.
“Circuit Citv Stores. Inc. v. Adams, 532 U.S. 105, 121 S.Ct. 1302, 149 L.Ed.2d
234 (2001).
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inquiry. If the Court of Appeals elects to dismiss 2001-CA-2668 on the grounds that it
has no jurisdiction to entertain a direct appeal from the interlocutory order denying
Movants’ motion to compel arbitration, Movants could raise these arguments in a
motion for discretionary review from the dismissal. Here, however, we are considering
Movant’s first appellafe action - the one in which they specifically invoked the CR
65.07 jurisdiction of the Court of Appeals, and then this Court’s CR 65.09 jurisdiction.
We can neither find nor imagine any justification for this Court to remand this matter to
the Court of Appeals and instruct them to reconsider a pleading that Movants labeled a
“Motion Pursuant to CR 65.07 For Relief From Order Denying Motion to Compel
Arbitration” (emphasis added) as if it were actually a CR 73 direct appeal. Thus, we
conclude that Movants’ criticism of the CR 65.07 and CR 65.09 interlocutory appeal
procedures does not establish “extraordinary cause” to support the relief they desire.
Nor do we believe that Movants have otherwise demonstrated sufficient cause
warranting CR 65.09 relief. Movants do not even allege that the trial court’s factual
finding as to Respondent’s lack of actual notice was clearly erroneous. Instead,
Movants direct the Court to case law addressing an employer’s ability to unilaterally
change the terms and conditions of employment. However, none of the authority
Movants cite demonstrates that, under Kentucky contract law, Respondent could have
reached a “meeting of the minds” with Oakwood and agreed to arbitrate her claims
without having actual notice of Oakwood’s arbitration policy.
Because Movants have
failed to show otherwise, we therefore find both that the trial court’s factual finding was
supported by substantial evidence and that the trial court properly concluded that
Respondent had not contracted away her right to proceed in a judicial forum.
-lO-
IV. CONCLUSION
For the above reasons, we deny Movants’ Motion to Vacate Pursuant to CR
65.09.
All concur.
Entered: August 22, 2002.
-ll-
2002-SC-0147-l
OAKWOOD MOBILE HOMES, INC
AND WILLIAM J. ROTERT, JR.
MOVANTS
MOTION FOR CR 65.09 RELIEF
COURT OF APPEALS NO. 200l-CA-2642-I
HARDIN CIRCUIT COURT NO. 99-Cl-1614
V.
SHERRIE A. SPROWLS
RESPONDENT
ORDER
The Opinion and Order Denying Motion to Vacate Pursuant to CR 65.09, entered
August 22, 2002, shall be amended on page 3, third full paragraph, line 7, by changing
the word “police” to “policy”, as attached hereto. Said modification does not affect the
holding.
Entered:
August 26, 2002
ICE JOSEPH E. LAMBERT
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